The Judgment of the Court was delivered by

Masud, J.:— The facts under which this reference under section 66(1) of the Income-tax Act, 1922, arises may be briefly stated as follows:

The assessee company had its mines known by the name Mundulpoor Coal Co., Ltd. in Ranigunj Coal Fields in Bihar. This business was closed down on March 10, 1957, which falls within the accounting year relevant to the assessment year 1957-58. The accounting period ended on March 31, 1957. During the relevant assessment year the assessee suffered a loss of Rs. 1,72,463 from this mine. On March 14, 1957, the assessee took up a contract for raising coal from the colliery belonging to Central India Coal Fields Ltd. known as Khas Badjana Collieries. The said loss amounting to Rs. 1,72,463 was sought to be carried forward for the purpose of deduction against future profits of the assessee's other venture under section 24(2) of the Act. The Income-tax Officer refused to carry forward the said loss on the ground that the loss suffered by the assessee had arisen out of a business which had been abandoned. On appeal the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer by adding a further ground that the subsequent undertaking of coal raising contract although of allied nature could not be treated as continuation of the assessee's previous business, namely, coal mining at Mundulpoor. The assessee appealed against the said order to the Appellate Tribunal but the said appeal was dismissed. On these facts, the question of law that arises is as follows:

“Whether in the facts and circumstances of the case, the two activities of the appellant company, i.e, the raising of coal from its coal mines and that from the mines belonging to other company constituted the same business or different businesses for the purpose of carry-forward and set-off of losses determined for the assessment year 1957-58 under section 24(2) of the Income-tax Act, 1922?”

2. Dr. D. Pal, learned counsel for the assessee, has submitted that the losses suffered by the assessee in its coal mining business should have been set off against the assessee's business under the contract of coal raising from the colliery belonging to Central India Coal Fields Ltd. According to him, the coal mining business of the assessee and the contract business were different activities of the assessee's same business and they could not be called distinct from one another. Under the memorandum of association of the assessee company, he added, it was competent for the assessee company to hold collieries as proprietors and also to do mining business which would include raising of coal on contracts. He further submitted that the same labour and staff which were running the Mundulpoor Mining business were diverted to the contract business of coal raising from the colliery belonging to Central India Coal Fields Ltd., and, as such, the control and the structure of profit making in so far as the assessee was concerned were inter-dependent between the two businesses. The short point to be decided in this case is whether the assessee's business under the contract of coal raising could be described as continuation of the assessee's coal mining business at Mundulpoor within the meaning of section 24(2) of the Act. The relevant provisions of section 24(2) read as follows:

“Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, in business, profession or vocation and the loss cannot be wholly set off under subsection (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year, and

(i) Where the loss was sustained by him in a business consisting of speculative transactions, it shall be set-off only against the profits and gains, if any, of any business in speculative transactions carried on by him in that year;

(ii) Where the loss was sustained by him in any other business, profession or vocation, it shall be set off against the profits and gains, if any, of any business, profession or vocation carried on by him in that year: provided that the business, profession or vocation in which the loss was originally sustained continued to be carried on by him in that year; and

(iii) if the loss in either case cannot be wholly so set off, the amount of loss not so set off shall be carrid forward to the following year and so on…”

3. Thus, it is clear that under this section the assessee's loss in its coal mining business at Mundulpoor could be carried forward for set-off in future years against the profits or gains derived by the assessee from its business under the contract of coal raising provided that the assessee's coal mining business at Mundulpoor could be held to have been continued in the relevant assessment year, or, in other words, we shall have to find out whether the assessee's coal mining, business and the assessee's business under the contract of coal raising could be described as different activities of the assessee's same business. In the instant case, the Tribunal has come to a finding that the two businesses of the assessee do not subsist at the same time and the assessee's business under coal raising contract was started after the previous business of coal mining at Mundulpoor had been disbanded or closed. Further, there is no evidence to show that previously at any stage the assessee carried on a business under contract of coal raising from the collieries belonging to others.

4. The Supreme Court following the dictum of Rowlatt J. in Scales v. George Thompson & Co. Ltd. 1927 13 Tax Cas. 83, 89., has laid down the principles which should govern the cases under section 24(2) in Setabganj Sugar Mills Ltd. v. Commissioner of Income-tax [1961] 41 I.T.R 272, where Hidayatullah, J. at page 274 has stated;

“The learned judge also observed that what one had to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These principles have to be applied to the facts, before a legal inference can be drawn that a particular business is composed of separate businesses and is not the same one. No doubt, findings of facts are involved, because a variety of matters bearing on the unity of the business have to be investigated, such as unity of control and management, conduct of the business to the same agency, the inter-relation of the businesses, the employment of same capital, the maintenance of common books of account, employment of same staff to run the business, the nature of different transactions, the possibility of one being closed without affecting the texture of the other and so forth. When, however, the true facts had been determined, the ultimate conclusion is a legal inference from proved facts, and it is one of mixed law and fact, on which depends the application of section 24(2) of the Act.”

5. Thus, it is clear that the sameness of the business activities of the assessee does not depend upon any casual or fortuitious connection. Applying the aforesaid test, we are of opinion that the assessee's business under the contract of coal raising cannot be described as the continuation of the assessee's coal mining business. It is nobody's case that the assessee company is not competent to carry on the business under the contract of coal raising from others' collieries. The two ventures of the assessee's business may be perfectly permissible under the Companies Act. But that by itself cannot be relevant factor in determining the sameness of the business. Apart from the fact that the coal mining business which involves the sale of coal after raising the coal from company's own colliery is substantially distinct from business under the contract of coal raising from others' collieries, in the instant case, the assessee's new venture of coal raising from other colliery has not been handled by the assessee in the past. In fact, in the instant case, this new activity of the assessee has only been commenced after the old and the main venture of the assessee has been abandoned. Lastly, in the instant case, there is no inherent or factual inter-connection or interdependence of one venture upon the other nor could it be said that the closure of one would vitally affect the business of the other. Far from interdependence in this case, there is clear finding that a new venture has been undertaken by the assessee after abandonment or closure of its previous venture.

6. Dr. Pal relied upon Soundrapandia Nadar v. Commissioner of Income-lax where the Madras High Court held that dealing in forward contracts carried on by the assessee in the Rangoon grain market was part of the general business of the assessee as dealers in rice and grain and that, therefore, they were entitled to set off the loss against the profits of the relevant year under section 24(2) of the Act. Although Satya Narayana Rao J. adopted the observations of Rowlatt J. in Scales v. George Thompson & Co. Ltd., it is difficult to follow how Rowlatt J.'s observations could be made applicable to the facts of that case in favour of the assessee. In any event, the facts of that case are clearly distinguishable from the instant case. There the assessee for the first time entered into dealings in forward contracts in the assessment year 1938-39. In the next accounting year relevant to the assessment year 1939-40 the assessee bought only ready goods and did not enter into forward contracts. Again, in the accounting years for two assessment years, 1940-41 and 1941-42, the assessee bought ready goods and also entered into forward contracts. Thus, this is not a case where the losses suffered by the assessee in its one venture is being sought to be set off against the profits and gains of a new venture of the assessee.

7. Dr. Pal next relied on Commissioner Of Income-Tax, West Bengal… v. International Industries Ltd. Calcutta…. [1952] 22 I.T.R 44., the facts of which may be stated as follows:

The assessee-company, which was authorised by its memorandum of association to carry on various lines of business, carried on only celluloid business in the year 1944-45 and other lines of business, such as, managing agency, share dealings and joint ventures, in the year 1945-46. The Appellate Tribunal found that the celluloid business was entirely different from the assessee's other activities which were started only after the celluloid business was closed and that the celluloid business was sold off after March, 1944, and nothing of it was left in the year 1945-46. The Calcutta High Court held that as the business carried on by the assessee in the year 1945-46 was different from the business as carried on by it in the year 1944-45, the loss sustained by the latter could not be carried forward and set off against the profits of the former under the terms of section 24(2).

8. In our opinion, this judgment, far from supporting the assessee's case, diminishes the force of the assessee's contention. At page 56, Chakravartti J. relied on the findings recorded by the Tribunal in the additional statement of the case, namely:

“We have no hesitation in coming to the conclusion that the celluloid business was entirely different from the other activities of the assessee company. The other activities were started only after the celluloid business was closed. The accounts of the other activities were no doubt written up in the same books, but all it comes to is that the same set of books were continued after the close of the celluloid business. When the other activities were started, there was no celluloid business.”

9. In the said case also after the closing down of the celluloid business the services of the same staff were utilized. On the facts found by the Tribunal, Chakravartti J. has rightly come to the conclusion that the losses sustained in the celluloid business could not, under section 24(2), be set off against the profits of the subsequent business. For the reasons stated above the question of law should be answered in the following way:

In the facts and circumstances of the case the two activities of the appellant company, i.e, the raising of coal from its own coal mines and that from the mines belonging to other company constituted different business for the purpose of carry-forward and set-off of losses determined for the assessment year 1957-58, under section 24(2) of the Income-tax Act, 1922. The assessee shall bear and pay the costs of this reference.

G.K Mitter, J.:— I agree.